Businesses facing assessment for layoffs

Colorado businesses are getting hit for the second time this year, at an average of $340 each, to help the state pay benefits to laid-off workers.

Some 35,000 companies will have to pay a special assessment this summer, which will enable the state to cover interest on a federal loan it took out last year to keep its Unemployment Insurance Trust Fund (UITF) solvent after going broke in January 2010.

The Colorado Department of Labor and Employment (DLE) began sending letters on May 25, advising certain businesses that they’ll receive the assessments in July and will need to pay them to the state within 30 days of receipt. The assessments amounts could vary wildly, depending on each company’s layoff history, said Ellen Golombek, DLE executive director.

These special assessments come after most state businesses had large increases in their unemployment insurance premiums at the start of the year — some by as much as 300 percent. The latest fees, like the premium hikes, are related to the UITF going broke and the state needing to generate more revenue from employers to refill it.

“It’s not world-ending .... but it is going to be painful to a lot of small businesses that have already seen an increase in premiums,” said Loren Furman, vice president of governmental relations for the Colorado Association of Commerce and Industry. “I expect we’re going to hear from employers.”

The UITF is funded solely by fees assessed on businesses that have laid off workers who went on to collect unemployment benefits. The fund was actuarially sound in mid-2009, but the mass job losses during the recession caused it to run out of money six months later.

When the UITF became insolvent, Colorado was one of more than 30 states that had to borrow money from the federal government to pay its unemployment benefits. Stimulus legislation allowed those states to repay the loans without interest in 2009 and 2010. But despite a request from President Barack Obama to extend that interest-free repayment period through 2011, Congress has taken no action on this.

This month, the Legislature passed House Bill 1288, which replaces the antiquated funding system and should help employers to avoid such massive premium increases in the future. Gov. John Hickenlooper signed the bill on May 26.

This latest round of fees is tied to the $12 million in interest the state must pay the federal government by Oct. 1 on its outstanding loan of $245 million. Federal law prohibits states from using money collected through premiums to pay off such interest, meaning that the state had to send out a special second billing, Golombek said.

Businesses can expect two more such assessments in 2012 and 2013 until the federal loan is fully repaid, Golombek said.

Notices are being mailed now to tell businesses they’ll owe money later this summer; the Colorado Competitive Council recommended the mailing. Director Sara Cassidy said though she expects some businesses to be frustrated about the new assessment, the advance notice will help them to budget for it.

Golombek and Furman said the DLE and business groups have sent letters to Colorado’s congressional delegation, asking for a one-year extension on the interest-free loan period. The state continues to lobby for the extension, but believes it must prepare businesses to pay the assessments in order to meet the federal government’s Oct. 1 deadline, Golombek said.

Press secretaries for U.S. Reps. Mike Coffman, R-Colo., and Ed Perlmutter, D-Colo., said they’ve been lobbied very little about such an extension, however. Neither office has been pushing for it, though Coffman said he will research and continue to follow the issue.

Premiums for Ann Brown, president/co-owner of New Vista Image, a Golden graphics design and production business with seven employees, rose 700 percent, from roughly $500 to $3,500 this year, after she laid off three workers in 2009, one of whom used all allotted unemployment benefits.

New Vista has suspended raises and eliminated its direct marketing partly because of the premium hike, and the new assessment lessens the chances that it will reverse those actions soon, she said.

“Will this in itself hurt me? It’s probably not going to knock me out of business,” Brown said. “But how many things are we going to keep piling up on small business when we need small business to create jobs?”

Leland Lorentzen, CEO/CFO of Golden Aluminum Inc., a 170-employee company in Golden that sells aluminum to business for food and beverage packaging, said the assessment won’t have a huge financial impact on his company. But he believes the more businesses that have laid off workers are asked to pay into the UITF, the more they’ll hesitate to hire in the future.

“It makes you very, very cautious about hiring anybody, because even if they don’t work out in the first month, you have a two-year unemployment charge on your business,” Lorentzen said.